The Reserve Bank of New Zealand raised its Official Cash Rate by 25 bps to 1.00%, as expected. The central bank will not reinvest QE proceeds and bond holdings will begin decreasing by NZD5 billion per year in July.
Reserve Bank of New Zealand raise its Official Cash Rate from 0.75% to 1.00%
The rise in the official cash rate comes after last quarter’s which was the first since 2014 when the OCR hit a post-GFC peak of 3.5 per cent.
RBNZ projections for the path ahead:
Inflation is expected to decline as monetary policy acts to reduce demand, softening the pressure on available resources. Less pressure on housing-related resources and an easing in supply-chain bottlenecks are also expected to support a slowdown in inflation.
• Expectations for inflation over the next few years have increased. Although longer-term inflation expectations have risen, they remain close to 2 percent.
• Higher interest rates will be needed to make sure inflation is kept in check and we achieve as much employment as possible without increasing inflation
Employment is currently above its maximum sustainable level. However, employment growth has likely peaked and is expected to slow over the coming years. Spending and pressure on resources is expected to normalise due to less government support and rising interest rates
Annual average economic growth: 4.9 percent (Q3 2021)
• Annual inflation: 5.9 percent (Q4 2021)
• Unemployment rate: 3.2 percent (Q4 2021
Annual house price inflation across New Zealand has started to ease from its recent peak, as nationwide house prices fell in December 2021 and January 2022. Rising mortgage rates, more home building, tighter credit lending standards, and policy changes related to investors are among the factors slowing housing demand.
The unemployment rate has dropped to a record low level despite an increase in COVID-19-related
restrictions over the second half of 2021. Strong demand for labour has reduced unemployment across most age and ethnic groups. Businesses continue to face difficulty finding staff.
RBNZ Governor Orr Press conference
- capacity pressures in the economy are tightening still
- inflation expectations for 5 to 10 years are anchored but have risen recently
- cannot rule out 50bp rate hikes in the future, rates do need to rise significantly
- As expected, the RBNZ lifted the cash rate 25bps to 1% today. The path for interest rates is clearly higher as the bank faces into rising inflation.
- The RBNZ’s forecasts were upgraded following several positive surprises. The path for interest rates was also upgraded, with much more tightening to come. The new OCR track has pulled forward expected hikes and lifted the end point to 3.4%, from 2.6% (that’s big). We now see the RBNZ hiking to 3% in 2023.
- We continue to expect the RBNZ to hike the cash rate at each meeting in 2022. We see the OCR at 2.50% by November. We have, however, added two more rate hikes to 3% in 2023.
From a Sunburnt Country…
From The TradersCommunity Australian News Desk